West Fraser reports Adjusted EBITDA of $1.008 billion in Q1 2021
By West Fraser
By West Fraser
West Fraser Timber Co. Ltd. has reported the first quarter results of 2021. All dollar amounts in this news release are expressed in U.S. dollars unless noted otherwise.
The results of operations presented and discussed below include those of Norbord from Feb. 1, 2021, the date of the completion of the acquisition of Norbord.
First quarter highlights
- Sales increased 81 per cent from the prior quarter to $2.343 billion
- Earnings increased to $665 million, or 28 per cent of sales, from $282 million in the prior quarter
- Adjusted EBITDA increased to $1.008 billion from $453 million in the prior quarter
- Completed the acquisition of Norbord on Feb. 1, 2021
- Commenced commissioning at the new lumber mill in Dudley, Ga., and shipments commenced from the recently re-started OSB mill in Chambord, Que.
Operational results summary
The acquisition of Norbord was completed on Feb. 1, 2021. As a result of the acquisition, West Fraser has combined the North American operations of Norbord and its panels segment and renamed that segment North America (NA) Engineered Wood Products (EWP). In addition, West Fraser has created a Europe EWP segment that includes the results from the United Kingdom and Belgium operations.
West Fraser’s lumber segment generated operating earnings in the quarter of $607million (Q4-20 -$385 million) and Adjusted EBITDA of $646 million (Q4-20 -$425 million). Prior quarter operating earnings included a $95 million duty recovery related to the AR1 duty rate finalization. Adjusted EBITDA, which includes duties, increased due to higher lumber prices, partially offset by lower shipment volumes that were negatively impacted by seasonal railcar shortages in Canada and a period of extreme winter conditions in the U.S. South. Higher SPF log costs resulting from B.C. fibre shortages and higher B.C. and Alberta stumpage rates also negatively impacted Adjusted EBITDA compared to the prior quarter. Commissioning at Dudley continues on track and all major machine centres have now been operationalized.
West Fraser’s NA EWP segment generated operating earnings in the quarter of $299 million (Q4-20 – $44 million) and Adjusted EBITDA of $353 million (Q4-20 – $48 million). Segment operating earnings and Adjusted EBITDA were decreased by a one-time charge of $86 million related to inventory fair value adjustments from purchase price accounting. The addition of the company’s OSB operations from the date of the Norbord acquisition, higher plywood pricing and robust plywood demand positively impacted the NA EWP operating earnings for the quarter. These positive drivers of operating earnings were partially offset by purchase price accounting related to the Norbord acquisition that increased cost of products sold and increased levels of amortization. Higher log costs from increased B.C., Alberta and Ontario stumpage rates, higher resin costs and increased costs from the extreme weather in the U.S. South also negatively impacted operating earnings. Production levels at Chambord continue to gradually increase toward targeted levels in line with expectations.
The most significant uses for West Fraser’s lumber and OSB products are residential construction, repair and remodelling, and industrial applications. Low mortgage rates, low volumes of homes available for resale, favourable demographics, increasing acceptance of remote working and the underlying housing construction deficit due to several years of under building appear to be positively influencing the demand for new housing in North America. Economists are forecasting U.S. housing starts for 2021 to be approximately 1.5 million units, an increase of nearly nine per cent over 2020. An aging housing stock and increased repair and renovation spending should also continue to drive strong lumber, plywood and OSB demand.
West Fraser expects to maximize its capacity utilization in lumber, OSB and plywood operations subject to required maintenance downtime and assuming no unexpected disruptions from COVID-19 or other supply chain disruptions from weather, transportation, raw material availability or other factors.
Demand for West Fraser’s European products is expected to continue to be robust as demand for OSB as an alternative to plywood in Europe continues to grow.
Fibre costs for the company’s B.C., Alberta, and Ontario lumber and EWP operations are expected to remain elevated as long as lumber, and EWP prices remain high and demand exceeds the available log supply in B.C. A strengthening Canadian dollar ands tresses across the company’s supply chain, owing in part to a strong global economic recovery, are also expected to contribute to inflationary pressures on West Fraser’s input costs in the coming quarters.
The company’s balance sheet remains strong and is well equipped to face potential volatility that may exist in markets over the coming quarters and to support capital expenditure plans and returning capital to shareholders.
Norbord integration update
Efforts to integrate the Norbord business are in the early stages and are a company focus. There have been some early successes identifying cost savings in West Fraser’s fibre supply chain, and the company remains on track to achieve targeted annual synergies of $61 million over the next 18-24 months.